US trade deficit shrinking, as Trump promised

The U.S.’s trade deficit shrank in March to the lowest point since September of 2017, even as President Donald Trump’s trade negotiations are heating up.

The difference between what America exports and what it imports is down to to $49 billion, lower than the $57.7 billion deficit in February, according to the Department of Commerce.

Exports for March reached a record high of $208.5 billion, with increases in many goods and services exports, particularly to China.

Although not close to the “One Billion Dollar reduction” in China’s “massive Trade Deficit with the United States” Trump tweeted about in March, the deficit in March was $26 billion — 11.6 percent less than the monthly deficit for February.

The declining trade deficit is due in large part to rising exports of civilian aircraft, but soybeans and corn also saw increases, according to the data. U.S. companies increased commercial plane exports by $1.9 billion in March, selling a total of $5.9 billion overseas that month.

While March was a good month for soybean producers, the future spells trouble with escalating tariff threats between China and Washington. Even though the negotiations over China’s trade practices hasn’t become a full-fledged trade war, it looks like the country has already stopped buying American soy, according to a report from Bloomberg.

China canceled orders for nearly 63,000 metric tons of soybeans over two weeks in mid-April, and another 133,718 metric tons for the last full week in April, according to U.S. Department of Agriculture data.

A delegation from the Trump administration is in Beijing this week to discuss trade issues including the huge trade deficit, property issues and China’s subsidy structure.

The Chinese newspaper Global Times, a mouthpiece for the government, wrote Thursday that “Washington and Beijing should be clear: neither side can scare the other down. Negotiations are the best way to resolve the problem.”

In response to Trump’s plan to levy tariffs on about $150 billion of Chinese products, China targeted about $50 billion U.S. products, with soybeans and small planes included.

One thought on “US trade deficit shrinking, as Trump promised”

Most US economists do not worry about US trade deficits to a large degree. They claim trade imbalances are affected by a host of macroeconomic factors, including the relative economic growth rates of countries, the value of their currencies, and their saving and investment rates.

However, they often fail to acknowledge, US trade deficits could also be due to the US having negotiated bad trade agreements for decades, that enable “trading partners” to limit their imports of US goods, while increasing their goods exports to the US.

Trade Surpluses, Good or Bad

Major US “trading partners” (China, Japan, Korea, the EU, Canada, Mexico, etc.) have trade surpluses with the US, and will fight to maintain and increase them, because they create: 1) well-paying, steady jobs in their countries, 2) profits on their exports and income on any assets held abroad, and provides 3) tax revenues for their governments. Their economists view trade surpluses as positive and trade deficits as negative. They view owning US productive assets as positive, but limit US ownership of their productive assets, claiming “national champion” status, i.e., a Chinese or US company buying Mercedes or Siemens would never happen no matter how lucrative the offer.

US economists, especially those associated with Wall Street, in essence, explain with all sorts of convoluted reasoning, that the US having decades of trade deficits and increasing debtor nation status is just fine, nothing to worry about. They mention some of the causes are:

1) The too low US savings rates and too high consumption rates.
2) Excessive federal deficits, much of it financed by foreign entities.
2) The too high US preference for foreign goods.
3) The US being a service economy,
4) US manufactured goods being less attractive than foreign goods.

They do not mention flawed trade agreements, foreign government rules and regulations, foreign governments encouraging the bashing of US goods. Because Wall Street has much influence, its self-serving views are widely echoed by academia, government and the media.

NOTE: Various EU countries, using their state-controlled mass media, were actively agitating for Clinton and against Trump within Europe and the US (election interference?), because he wanted to renegotiate trade agreements to achieve reciprocity and balance in international trade, and to restore factory jobs in the US, whereas they wanted to maintain/increase their lopsided, lucrative trade surpluses, plus not pay their fair share of NATO.

NOTE: The US trade deficit with China mostly is in consumer goods: electronics, housewares, etc., sold by Walmart, Costco, Best Buy, LLBean, etc. Those deficits have increased through concerted action by the Chinese government to increase exports, by holding down the value of China’s currency and directly subsidizing some exporting industries. When China was admitted to the World Trade Organization in 2001, it obtained access to markets around the world and in turn committed to opening its own markets to countries, such as the United States. China did not keep up its end of the bargain. It did not provide easy access to its own markets. And for a long period after the Asian financial crisis, 2000 – 2010, it gave itself a competitive advantage by holding down the value of its currency. The EU and Japan do exactly the same, plus they exploit the advantage of being “US allies”, which means even less US restrictions on their trading and ownership activities in the US.

End Result of US Policies and Trade Negotiations

Foreign economists and countries love their trade surpluses with the US. Only US economists rationalize, by contortionist reasoning, decades of US trade deficits are just fine.

The US went from a $6.8 billion trade surplus in goods in 1964 (the last surplus) to an $810 billion deficit in goods in 2017; the deficits are mostly with industrialized nations. Each $1 billion in goods deficit means about 8000 less goods-producing jobs in the US. Foreign entities earned about 10%, or $81 billion on their export surplus in 2017.

US budget deficits are mostly financed by foreign entities. They obtained the funds from 1) the earnings on their trade surpluses with the US and from 2) the earnings of their US assets. This and other factors changed the US from being the largest creditor nation in the world to the largest debtor nation in the world. The 50 years of growing US budget deficits and trade deficits led to the value of US assets held by foreign entities becoming about $8.3 trillion greater than the value of overseas assets held by US entities by end 2016, a very large percentage of US GDP. The US was a creditor nation from 1910 to 1988. Foreign entities earned about 5%, or $415 billion on their net assets in 2016.

NOTE: In a Wall Street Journal op-ed in March 2017, Navarro argued that “running large and persistent trade deficits also facilitates a pattern of wealth transfers offshore” He warned that “foreigners will eventually own so much of the US that Americans will wind up working longer hours just to eat and to service the debt.”